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OM in the News: Amazon Takes Flight

December 21, 2016

amazon-prime-airChristmas is always Amazon’s busiest period and in 2016 it is gearing up to deliver 220 million packages between Black Friday and Xmas eve in the US alone. This time though, reports The Financial Times (Dec. 20, 2016), the logistical challenge will be helped by Amazon’s new fleet of 767 cargo jets. Some 15 of those planes are already in operation, with 25 more set to be delivered next year. Perfecting its shipping network is key to Amazon’s e-commerce business, which has never generated much profit. Amazon spent a record $4.2 billion on shipping in the 4th quarter of last year, and that figure is expected to grow this year.

While Amazon flights are mostly moving goods from one Amazon warehouse to another — and the company still relies on UPS, FedEx and the USPS — the growth of its new cargo fleet underscores that Amazon is serious about becoming a big presence in air freight. Over the past few years, Amazon has expanded its logistics capabilities and taken more hands-on control, adding not only planes but also truck trailers and fleets of urban drivers. This is a costly strategy, and one that carries fresh risks if things go wrong.

This holiday period will be a test of new systems, new process, new relationships, and a test of the labor markets. In previous years delayed packages could be blamed on the carriers, but that will apply less as Amazon takes matters into its own hands.

The rise of e-commerce has led to a surge in mailed packages — something that all carriers will be struggling to deal with this season. And we are still at the front end of a dramatic shift (without much historical data) in the way consumers behave. Faced with that uncertainty, Amazon is betting that its own networks will eventually prove cheaper and more reliable than the alternatives.

Classroom discussion questions:

  1. Is Amazon moving away from its core competence?
  2. What are the advantages and disadvantages of the new fleet?
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